Chip-company executives will to have to address an elephant in the room on conference calls this earnings season as the industry grapples with growing trade tensions with one of its largest customers, China.
Last week, the White House threatened to slap tariffs on another $200 billion in goods[1] imported from China if the country retaliated for U.S. tariffs already levied. So far, China has held off on imposing retaliatory tariffs on U.S. tech products, but those products, which are so important to China’s own tech industry, will likely get included if the country seeks dollar-for-dollar retaliation.
China, however, has demonstrated other tactics against U.S. chip makers. Earlier in the month, Micron Technology Inc.’s MU, +1.44%[2] stock weakened [3]and then rebounded [4]after a Chinese court blocked the sale of certain memory chips in a patent dispute that Cowen analyst Karl Ackerman said “appears inextricably linked to the U.S. and China trade war.”
Read: Trade war, tariffs and inflation will be the big worries this earnings season[5]
While Micron said the injunction will have a fractional effect on sales, any escalation of the trade war carries consequences for the Boise, Idaho-based chip maker, which derives about half its sales from China. Overall, China accounts for about a quarter of global memory-chip sales, which leaves many questions for chip makers as we enter tech’s earnings season.
Is trade-war anxiety already baked into chip maker stock prices?
“If not for the current uncertainty related to an escalating China trade war, we would look to be aggressive buyers of semiconductor stocks on the recent pullback,” said Evercore ISI analyst C.J. Muse, who believes a lot of potential tariff anxiety is already baked into chip shares.
At the end of the June quarter, the PHLX Semiconductor Index SOX, +1.47%[6] logged its first losing quarter in nearly three years[7]. While still up 8% for the year, the chip index had been up more than 16% on the year back in March. In comparison, the S&P 500 index SPX, +0.40%[8] is up 5.1% for the year, while the tech-heavy Nasdaq Composite Index COMP, +0.63%[9] is up 13.8%.
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